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Western States Water Council Legal Committee San Antonio, Texas October 20,2005 . In summary, she expressed the view that conflicts in Texas will have to further "heat up" before the state achieves the necessary clarification of the law on several key issues pertaining to water. "ENVIRONMENTAL PERSPECTIVES ON WESTERN WATER MARKETS AND MANAGING WATER FOR ECOSYSTEM PROTECTION" Mary Kelly, Ecosystems Program Director, and Tom Graff, California Regional Director, Environmental Defense Fund, made a presentation before the Committee on the use of water markets for environmental purposes. Mary first complimented and expressed appreciation for the work of Commissioner White. She noted that the purpose of water markets, while not a usual subject for environmental groups, was seen as a means to avoid unnecessary development of new supplies through reservoirs and other structures. A copy of Mary's presentation is also attached to these minutes. She thought it was important to move to a more sensible valuation and use of limited water supplies and that there needs to be an effective mechanism to establish flows in fully appropriated systems. Markets, utilizing leases and dry year options for senior rights, can serve that purpose. She mentioned examples from the lower Rio Grande valley, and the area surrounding San Antonio. She discussed constraints due to the lack of an adequate legal framework for transfers in some cases, and inflexibility in existing systems, as for example, within the Colorado River Basin, as well as the problems that can ensue from impacts on third parties from transfers. Also a central question with . regard to transferring water to environmental purposes is "who should pay?" Mary described the Texas Water Trust. She noted the general need for environmental flow targets to determine how much water should be acquired. She referenced the Farm Bill as a significant potential source of funds for water for environmental interests through conservation. Tom Graff referenced his experience in California, and the attempts to acquire water to move from the northern part of the state to the more populated southern part. After the defeat of the proposed "Peripheral Canal" in 1982, proposals were made for trading conservation investments for water. The Metropolitan Water District and the Imperial Irrigation District six years later agreed to such an arrangement. In California, water can be obtained for the environment through operational changes, direct allocation of water for the environment, and increasing pricing for water and power so as to establish a restoration fund for environmental purposes. The question of who pays is an important one, according to Mr. Graff. Successes have been accomplished where water transfers serve a double purpose - they meet environmental needs on the way to consumptive utilization. An ability to use water variably, and the establishment of revenue streams to support restoration, are important keys to success and provide means whereby the use of legal and regulatory mechanisms can be limited. A question and answer period ensued. Someone asked about how targets for instream flows are established. Mary Kelly noted that this becomes a stream-by-stream assessment. Tom noted the substantial difficulty in doing so in the Bay Delta of California, and recognized that there is not sufficient science as yet to do so with precision. Everyone has to deal with a certain level of uncertainty and do the best they can. . 4